Microsoft could be poised to make a fresh bid for its internet rival Yahoo, after Yahoo's chief executive, Jerry Yang, announced his intention of stepping down from the struggling web giant.

Yang has faced intense criticism of his time as chief executive - not least surrounding Microsoft's $44bn (then £22.5bn) offer to buy the company earlier this year - but Yahoo had repeatedly denied speculation that the 40-year-old billionaire co-founder was set to be replaced. On Monday night, however, Yang confirmed that he would be leaving the CEO role once a suitable successor had been found.

Yahoo's chairman, Roy Bostock, said he was "deeply grateful" to Yang, but that the board was starting the search for a new leader who could "take the company to the next level". "Jerry and the board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO," Bostock said.

News of Yang's departure led to immediate speculation over the possibility of a new deal with Microsoft. "The company is in desperate need of change, and this is clearly one way to do it," said Ross Sandler, an analyst at RBC Capital Markets. "Jerry was the roadblock to the last deal getting done."

A Microsoft spokesman said that the company had no comment on the situation, but investors said they expected the Seattle-based software empire to take advantage of its rival's low share price and weak position.

"We still believe Microsoft will eventually own Yahoo - Jerry moving out of the CEO role may accelerate this," said Ben Schachter, an internet analyst with UBS Investment Research. "Yahoo is a key strategic asset in the online space, and given the scarcity of key players of size, we see value here not reflected in the stock's current valuation."

Tumultuous year

After Microsoft's $44bn bid in February, Yahoo held out over the valuation and looked to Google. Just last week Microsoft's chief executive, Steve Ballmer, said he had "moved on" from the deal - but with Yang out of the picture, industry observers expect the situation to change.

If Microsoft does repeat its attempt to buy Yahoo, however, it could try a significantly lower valuation. Although Yahoo's share price rebounded more than 10% to $11 a share in early trading yesterday, the financial crisis and recent results have left its value drastically below the $31 a share Microsoft had offered.

Even though the company's board is weakened after a tumultuous year and attacks by the corporate raider Carl Icahn, it is still largely populated by those who rejected the initial offer from Microsoft - and they may fight selling the company off at bargain basement prices.

The decision to step down will come as a personal blow to Yang, who founded Yahoo with his Stanford University friend David Filo in 1994.

Yang was a surprise choice for the job when he took over 18 months ago, succeeding the former Hollywood executive Terry Semel in what many saw as an interim role. His lack of high-level leadership experience and a failure to drive up profits at the world's biggest website left him vulnerable.

Not only has Yahoo's share price been hammered during the financial crisis, but investors questioned Yang's approach when profits for the last quarter showed a drastic drop. The firm confirmed last month it planned to shed 1,500 jobs - on top of 1,000 layoffs announced in January. Even Yang's attempt to come up with a profitable alternative to the Microsoft deal - a multimillion-dollar advertising agreement with its rival Google - failed after Google pulled out following an investigation by the US department of justice.

Yang still sent a memo to all staff saying he believed the company was in a stronger position than when he took over the role. "Thanks in large measure to your tireless efforts, we have created a more open, competitive Yahoo," he said. "While this step will be an adjustment for all of us, I know it's the right one." He said he planned to retain his former title of "chief Yahoo" and stay heavily involved in strategy and decision-making.

The corporate headhunters Heidrick & Struggles have been given the job of finding a replacement, which is expected to take four to 12 weeks.

The likely successors

Jonathan Miller

Masterminded AOL's reinvention from a closed-off internet provider to a web media company like Yahoo.

Could be a serious contender.

Meg Whitman

Former chief executive of eBay, below, left the internet auction site struggling on the brink of widespread layoffs and, crucially, short of ideas. The board may find it hard to warm to her.

Sue Decker

Yahoo president, Decker is a leading in-house contender. She is credited with helping oust the former boss Terry Semel, but her coup ushered in Yang's reign and her reputation is connected with his.

Peter Chernin

As Rupert Murdoch's second-in-command at News Corporation, Chernin has built a formidable reputation but seems unlikely ever to get the top job as Murdoch's son James rises up the corporate ladder.

Steve Ballmer

Microsoft's chief executive could be tempted to buy his Californian competitor. Although he said he was no longer interested, with Yang out of the way Ballmer could be ready to seize the moment.